Oil over $115 as US Syria strike plan passes 1st hurdle

Global oil prices held above $115 a barrel on Thursday after U.S. President Barack Obama won some support from lawmakers for a military strike on Syria, adding to concerns that Middle East supply disruptions will persist.

Brent crude oil prices are unlikely to rise steeply, given expectations for a short, limited strike on Syria, unless the situation slips out of control and important shipping routes are blocked or major Middle East producers are dragged into a war.

Gains may also be limited as investors wait for the U.S. Federal Reserve to give more details on possible plans to roll back stimulus, which would boost the dollar and weigh on oil.

"Syria and Egypt geopolitical rumblings are still adding a $7 to $10 risk premium to the Brent price, where fears of instability in the region rather than actual supply disruptions continue to underpin the global benchmark," VTB Capital's Andrey Kryuchenkov said in the Reuters Global Oil Forum.

"A limited U.S. strike, if indeed realised this month, would only see a temporary spike past August highs, provided there are no supply disruptions elsewhere. The prices would then sink back to the July range."

Investors expect any strike on Syria to be limited. The Senate Foreign Relations Committee voted in favour of a resolution that sets a 60-day limit on any engagement in Syria, with a possible 30-day extension, and bars the use of U.S. troops for ground combat.

While Syria is not a big oil producer itself, markets are already struggling to cope with the loss of supplies from a region that pumps a third of the world's crude. Outages in the Middle East and Africa have surpassed 3 million barrels per day, or about 3.5 percent of global demand.

Libya's oil exports have shrunk to just over 10 percent of capacity from three out of a possible nine ports as armed groups have tightened their grip on oil facilities.

Libya's prime minister said patience was running out with protesters, but previous warnings that the government would take action have so far failed to restore exports.

"Syria is making a lot of headlines, but the market is really about Libya," Olivier Jakob, an analyst at Petromatrix, said.

"It is very difficult to forecast, and it could as easily go back to normal tomorrow or not. But the reality is that the amount of oil coming out of Libya is very small."

FURTHER RISES?

Oil, particularly the U.S. benchmark, has also gained from an industry report showing a steep fall in crude stockpiles in the world's biggest consumer.

Crude inventories fell by 4.2 million barrels in the week to Aug. 30 to 362 million, the American Petroleum Institute (API) said, versus expectations for a decrease of 1.3 million.

Kryuchenkov said a seasonal easing in demand from refiners and higher U.S. production made it unlikely that the OECD would arrange a coordinated emergency crude inventory release as they did during the Libyan war and Arab Spring uprisings that swept the region in 2011.

"The market is just better supplied at the moment," he said.

Brent crude is seen holding above the $115 a barrel level and potentially rising further on supply losses from Libya, Iraq and the North Sea, traders and analysts said.

Jefferies Bache analysts see Brent pushing towards $120 a barrel, stretching its premium over the U.S. WTI benchmark. (Additional reporting by Manash Goswami; Editing by Dale Hudson and Jane Baird)